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The Time For Gold Is Now—During the Period Between a Recession and an Economic Comeback

While we begin to emerge from the common coronavirus (COVID-19) pandemic, it comes as no surprise that the world and nearly every state in the United States are already in the midst of an economic depression, not to mention the heartbreak over a loss. The new government stimulus packages are a necessity for many Americans and may help stimulate the economy to a degree, but there is no magic wand. We do not have full confidence in an immediate comeback or the long-term impacts of this unexpected event. If people hang on to the stimulus money, we could easily find ourselves in a longer-term recession instead of a much-needed economic comeback.

In an article by Investopedia entitled, Stimulus Package, contributor Adam Hayes states, “A stimulus package is a coordinated effort to increase government spending and lower taxes and interest rates to stimulate an economy out of a recession or depression.” While this is undoubtedly the intention of the US government, this pandemic has impacted the economy like no other event history. It is also possible that the stimulus package could backfire. Hayes goes on to say, “A potential problem of fiscal stimulus is that to increase public spending, the government has to increase its borrowing, which would lead to a higher debt-to-GDP ratio. Also, people may choose to save the excess disposable income instead of spending it, which could render the stimulus package ineffective.” No one knows for sure how the stimulus package will play out.

Gold Sellers React

During previous recessions, the attempt by investors to acquire physical gold to grow their wealth and protect their assets (much like purchasing stocks and bonds) required some effort. Personal investors should expect competition by gold sellers and real money traders (RMTs) as well as other private investors. In previous post-recession periods, many dealers secured gold bullion and went on to become some of the wealthiest gold sellers in the world, with wealth that expanded in less than 10 years. Prices are rising today as a result of the worldwide interest in gold due to the current economic scenario.

Gold as a Diversification Option

When financiers implement a broad set of investment options, including a hedge against inflation, their financial portfolios are more secure when a recession hits. Whether or not investors desire physical gold, they have the opportunity to invest in a gold-backed exchange-traded fund (ETF)—a paper form of gold investment. Primarily they invest in the price of gold (owning a share of the trust). This global recession is the time when investors look at diversification, especially when the Fed is going into a national debt to help with our economic recovery—which could place us into an inflationary state. Also, consider that the central banks are continually adding physical gold to their stockpiles. Gold already serves as a worldwide reserve currency in which investors swap some of their stocks and bonds for gold while gold prices are stable.

The Nature of Gold

Gold is the ultimate form of money—a store of value. Unlike stocks and bonds, gold is not generally used as an income-producing asset. Gold investment is not the same as a stock or bond but rather more like paper money to some degree. Gold, like the US dollar, is a medium of exchange that pays no dividends. So, while the US dollar and gold have more similarities than other forms of investments, they are different primarily in that gold supplies have a limit. With the Fed increased its balance sheet from $5 trillion to $9 trillion, consider that this figure is nearly as much as the total value of all gold in the world. As interest rates continue to drop, given the stimulus, the fixed amount of gold is going into the hands of savvy investors at a critical time. The fact is, gold maintains its purchasing power over and over—in a way that has outperformed all fiat currencies for more than 100 decades.

A Time For Gold

Investors, financiers, and banks have learned that in times like these when the value of newly printed paper money is unstable, gold prices rise. We also know that in times like these, investors turn to gold as a hedge against inflation, since gold supplies are less constant. Below are some thoughts about why it may be time for gold:

  • Current supply and demand drives gold prices higher in times of crisis
  • Gold as a hedge against inflation is more sound than paper money (when printed to stimulate the economy)
  • As the demand for gold rises, the value will increase; it’s essential to purchase low before the recovery period ends
  • Gold is an excellent diversification tool for financial portfolios in periods of economic recession
  • Physical gold and gold-backed investments are low-risk transactions
  • Gold cannot be printed and therefore devalued like fiat money

Consider that the gold price peaked as high as $1,921 per ounce in 2011 as the US economy was ending a recovery period. In fact, the cost of gold has begun to rise in response to the pandemic, with today’s gold price up 6.80% in only the past six months (according to Kitco). Oddly enough, a recessionary recovery period is often the best period to buy gold.

The recovery of the worldwide pandemic is inevitable—it’s a matter of when and how Americans and the world can make a comeback. While the world may never come back the same, it will indeed get back to a new normal. Consider that the time for gold is now—during the period between a recession and an economic comeback.

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World Crisis Proves To Be The Best Time To Hedge With Gold

As history proves, when we have a world crisis, gold shines through! The cycle for gold over the decades shows several factors that influence the price, including periods of deflation, expansion, recession, and world crises. We know the ending period of a recession, for example, is when gold prices skyrocket; thus, the best time to hedge with gold is usually right before a recession recovery.

With the current worldwide economic devastation attributed to the COVID-19 (Coronavirus) breakout in December 2019, you, as investors and family providers alike, are taking time to reflect on many important matters. This reflection might include a re-evaluation of the insurance strategy you have for your investments. You may be asking some key questions:

  • Is my investment portfolio one that gives me peace of mind during such a crisis as this (one like I’ve never experienced in a lifetime)?
  • Am I investing in smart money?
  • What can I do to hedge against the inflation that is certain to come after the pandemic recovery?
  • What other investment options do I have?

Why Buy Gold Now?

While gold prices have been slowly but steadily rising since early 2019, since the outbreak of the COVID-19 pandemic, gold has already shown a sudden increase. So, why buy gold now? The price of gold per ounce on December 31, 2019, was $1,519.50. In April 13, 2020, only a few months later, the gold price per ounce is $1,737. With the knowledge that gold will continue to rise during the pandemic recovery period that is expected to go on for several months (if not longer), investors must buy before the price of gold rises. The trend for gold post-crisis is to spike. Because we are likely due for an extended pandemic recovery period, buying gold now is a smart decision.

In an article posted by The Balance, entitled Should I Buy Gold, Kimberly Amadeo states, “The main reason why people buy gold is to preserve their money during an economic crisis. Gold is the best hedge against a potential stock market crash…” While there is a great deal of uncertainty about the recovery of this worldwide pandemic, we can anticipate more hardships as we try to re-open businesses, get people back to work, and recover from the financial pileup over the trillions of dollars spent on US stimulus packages. The repercussions are unknown, but they will be substantial.

Gold Availability

It is a time of caution given the unknowns as we begin a health and economic recovery from the pandemic, but there are many “knowns” to consider. We know for sure that the price of gold is up. We also know that there may be backlogs on orders for gold! While most precious metals are plentiful, the time to market and into your hands is delayed, given the state of the world. Gold availability is another driver for investors who believe now is the right time to take advantage of the price of gold. We also know that while the price has not yet skyrocketed, many financiers are taking this opportunity to place their orders.

In many cases, there are delays because of a backlog of orders at a time when many companies are out of business. In a Los Angeles Times articlegold faces historic squeeze with coronavirus threatening a shortage, the author states, “At issue is whether there will be enough gold available in New York to deliver against futures contracts traded on the Comex in New York with metals refiners shutting down and efforts to contain the virus halting planes.” You see, based on this world crisis, there is more than one factor contributing to the availability of gold and the demand.

Bringing Back The Gold Standard

President Trump and a number of his advisors have over the past year made some comments about returning to The Gold Standard—the monetary system in which the country’s currency is linked to gold; a fixed price is set at which to buy and sell gold in order to determine currency value. You may recall Nixon discontinued The Gold Standard in 1971. President Trump, who is said to love gold (who does not), is quoted as saying, “Bringing back the gold standard would be very hard to do, but boy, would it be wonderful. We’d have a standard on which to base our money.” While it’s controversial, the idea may also encourage buyers, which may, in turn, drive up the price.

Whether with gold, silver, or another precious metal, there is no doubt that this is the time to re-evaluate your financial portfolio. The markets have been walloped in the past few months (after record numbers), but the recent crisis makes it a good time to diversify in a hedge with gold. Forbes Contributor, Naeem Aslam, in an article entitled Why You Should Buy Gold Now, states, “After all, the economic weakness isn’t fully baked into economic data, let alone in earnings. Thus, there is no better time to buy gold.”